Sec. 4.1906. Compliance with Internal Revenue Code Section 415.
(a) Notwithstanding any other provisions of Tiers 1, 2, 3, 4, 5, or 6, the benefits payable to any person under those Tiers who became a member of the Fire and Police Pension Plan prior to January 1, 1990, shall be subject to the greater of the following limitations:
(1) The limitations set forth in Section 415 of the Internal Revenue Code; or
(2) The accrued benefit of the member determined without regard to any amendment to the Plan made after October 14, 1987, as provided in Section 415(b)(10)(A) of the Internal Revenue Code.
(b) The benefits payable to any person who becomes a member of the Fire and Police Pension Plan on or after January 1, 1990, shall be subject to the limitations set forth in Section 415 of the Internal Revenue Code.
(c) Should it be determined that the provisions of any section of Tiers 1, 2, 3, 4, 5, or 6 violate the limitations of Section 415 or the incidental death benefit provisions of the Internal Revenue Code, such section shall be deemed inapplicable to the extent necessary to achieve compliance. The Council shall, by ordinance, adopt such measures as are necessary to achieve compliance.
(d) The Council shall, by ordinance, provide such benefits as are necessary to preserve the level of benefits without regard to Section 415 for members of Tiers 1, 2, 3, 4, and 5. The Council shall, by ordinance, preserve the level of incidental death benefits in effect prior to the effective date of this section for members of Tiers 1, 2, 3, 4, 5, and 6.
(e) Ordinances adopted pursuant to this section shall be adopted in the same manner as provided in Section 1618(b) of the City Charter; except, however, any ordinances adopted shall be effective upon publication.
(f) If any of the provisions of Section 415 of the Internal Revenue Code should be repealed, the provisions of this section shall be deemed repealed to the same extent.
(g) All benefits provided pursuant to any ordinance adopted under the provisions of Subsection (e) shall be administered by the Board. A separate and distinct fund or funds shall be created by the Board, as required, to administer such benefits. Such fund or funds shall not contain employee contributions. The Board shall also determine the manner of funding any liabilities incurred as a result of ordinances adopted pursuant to this section.
(h) Participation in Other Qualified Plans: Aggregation of Limits. The 415(b) limit with respect to any member who at any time has been a member in any other defined benefit plan as defined in Section 414(j) of the Internal Revenue Code maintained by the City of Los Angeles, shall apply as if the total benefits payable under all such defined benefit plans in which the member has been a member were payable from one (1) plan.
(i) Basic 415(b) Limitation.
(1) Before January 1, 1995, a member may not receive an annual benefit that exceeds the limits specified in Section 415(b) of the Internal Revenue Code, subject to the applicable adjustments in that section. On and after January 1, 1995, a member may not receive an annual benefit that exceeds the dollar amount specified in Section 415(b)(1)(A) of the Internal Revenue Code, subject to the applicable adjustments in Section 415(b) of the Internal Revenue Code, and subject to any additional limits that may be specified in the Plan. In no event shall a member’s benefit payable under the Plan in any limitation year be greater than the limit applicable at the annuity starting date, as increased in subsequent years pursuant to Section 415(d) of the Internal Revenue Code and the regulations thereunder.
(2) For purposes of Section 415(b) of the Internal Revenue Code, the “annual benefit” means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) without regard to the benefit attributable to after-tax employee contributions (except pursuant to Section 415(n) of the Internal Revenue Code) and to rollover contributions (as defined in Section 415(b)(2)(A) of the Internal Revenue Code). The “benefit attributable” shall be determined in accordance with Treasury Regulations.
(j) Adjustments to Basic 415(b) Limitation for Form of Benefit.
(1) If the benefit under the Plan is other than the form specified in Subsection (i)(2), then the benefit shall be adjusted so that it is the equivalent of the annual benefit, using factors prescribed in Treasury Regulations.
(2) If the form of benefit, without regard to the automatic benefit increase feature, is not a straight life annuity or a qualified joint and survivor annuity, then the preceding sentence is applied by either reducing the Section 415(b) of the Internal Revenue Code limit applicable at the annuity starting date or adjusting the form of benefit to an actuarially equivalent amount (determined using the assumptions specified in Treasury Regulation Section 1.415(b)-1(c)(2)(ii)) that takes into account the additional benefits under the form of benefit as follows:
(i) For a benefit paid in a form to which Section 417(e)(3) of the Internal Revenue Code does not apply (a monthly benefit), the actuarially equivalent straight life annuity benefit that is the greater of:
(A) The annual amount of the straight life annuity (if any) payable to the member under the Plan commencing at the same annuity starting date as the form of benefit to the member; or
(B) The annual amount of the straight life annuity commencing at the same annuity starting date that has the same actuarial present value as the form of benefit payable to the member, computed using a 5% interest assumption (or the applicable statutory interest assumption) and (i) for limitation years prior to January 1, 2009, the applicable mortality tables described in Treasury Regulation Section 1.417(e)-1(d)(2) (Revenue Ruling 2001-62, or any subsequent Revenue Ruling modifying the applicable provisions of Revenue Rulings 2001-62), and (ii) for limitation years after December 31, 2008, the applicable mortality tables described in Internal Revenue Code Section 417(e)(3)(B) (Notice 2008-85, or any subsequent Internal Revenue Service guidance implementing Internal Revenue Code Section 417(e)(3)(B)).
(ii) For a benefit paid in a form to which Section 417(e)(3) of the Internal Revenue Code applies (a lump sum benefit), the actuarially equivalent straight life annuity benefit that is the greatest of:
(A) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using the interest rate and mortality table, or tabular factor, specified in the Plan for actuarial experience;
(B) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using a 5.5% interest assumption (or the applicable statutory interest assumption) and (i) for limitation years prior to January 1, 2009, the applicable mortality tables described in Treasury Regulation Section 1.417(e)-1(d)(2) (Revenue Ruling 2001-62, or any subsequent Revenue Ruling modifying the applicable provisions of Revenue Rulings 2001-62), and (ii) for limitation years after December 31, 2008, the applicable mortality tables described in Internal Revenue Code Section 417(e)(3)(B) (Notice 2008-85, or any subsequent Internal Revenue Service guidance implementing Internal Revenue Code section 417(e)(3)(B)); or
(C) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable (computed using the applicable interest rate for the distribution under Treasury Regulation Section 1.417(e)-1(d)(3), using the rate in effect for the third month prior to the beginning of the plan year with a one-year stabilization period) and (i) for limitation years prior to January 1, 2009, the applicable mortality tables described in Treasury Regulation Section 1.417(e)-1(d)(2) (Revenue Ruling 2001-62, or any subsequent Revenue Ruling modifying the applicable provisions of Revenue Rulings 2001-62), and (ii) for limitation years after December 31, 2008, the applicable mortality tables described in Internal Revenue Code Section 417(e)(3)(B) (Notice 2008-85, or any subsequent Internal Revenue Service guidance implementing Internal Revenue Code Section 417(e)(3)(B)), divided by 1.05.
(iii) The actuary may adjust the 415(b) limit at the annuity starting date in accordance with the above subparagraphs (i) and (ii).
(k) Benefits For Which No Adjustment of 415(b) Limit Is Required. For purposes of this section, the following benefits shall not be taken into account in applying these limits:
(1) Any ancillary benefit which is not directly related to retirement income benefits;
(2) That portion of any joint and survivor annuity that constitutes a qualified joint and survivor annuity;
(3) Any other benefit not required under Section 415(b)(2) of the Internal Revenue Code and Treasury Regulations thereunder to be taken into account for purposes of the limitation of Section 415(b)(1) of the Internal Revenue Code.
(l) Other Adjustments in 415(b) Limitation.
(1) In the event the member’s retirement benefits become payable before age sixty-two (62), the limit prescribed by this section shall be reduced in accordance with Treasury Regulations, pursuant to the provisions of Section 415(b) of the Internal Revenue Code, so that such limit (as so reduced) equals an annual straight life benefit (when such retirement income benefit begins) which is equivalent to a one hundred sixty thousand dollar ($160,000.00) (as adjusted) annual benefit beginning at age sixty-two (62).
(2) In the event the member’s benefit is based on at least fifteen (15) years of service as a full-time employee of any police, harbor police, or fire department or on fifteen (15) years of military service, or is based on fifteen (15) years of combined service, the adjustments provided for in (1), above, shall not apply.
(3) The reductions provided for in (1), above, shall not be applicable to members who receive disability retirement benefits or survivors who receive survivors’ benefits prior to the date the member reaches age sixty-two (62).
(m) Less than Ten (10) Years of Participation or Service Adjustment for 415(b) Limitations. The maximum retirement benefits payable to any member who has completed less than ten (10) years of participation shall be the amount determined under Subsection (i), as adjusted under Subsection (j) and/or (l), multiplied by a fraction, the numerator of which is the number of the member’s years of participation and the denominator of which is ten (10). The limit under Subsection (n) concerning the $10,000.00 limit shall be similarly reduced for any member who has accrued less than ten (10) years of service, except the fraction shall be determined with respect to years of service instead of years of participation. The reduction provided by this subsection cannot reduce the maximum benefit below 10% of the limit determined without regard to this subsection. The reduction provided for in this subsection shall not be applicable to pre-retirement disability benefits or pre-retirement death benefits. The reductions provided for in this subsection (m) shall not be applicable to members who receive disability retirement benefits or survivors who receive survivors’ benefits prior to the date the member reaches age sixty-two (62).
(n) Ten Thousand Dollar ($10,000.00) Limit. Notwithstanding the foregoing, the retirement benefit payable with respect to a member shall be deemed not to exceed the 415 limit if the benefits payable, with respect to such member under this Plan and under all other qualified defined benefit pension plans to which the City of Los Angeles contributes, do not exceed ten thousand dollars ($10,000.00) for the applicable limitation year, and for any prior limitation year, and the City of Los Angeles has not, at any time, maintained a qualified defined contribution plan in which the member participated.
(o) Effect of COLA without a Lump Sum Component on 415(b) Testing. Effective on and after January 1, 2008, for purposes of applying the limits under Section 415(b) of the Internal Revenue Code (the “Limit”) to a member with no lump sum benefit, the following will apply:
(1) A member’s applicable Limit will be applied to the Member’s annual benefit in the member’s first limitation year without regard to any cost of living adjustments under the Plan;
(2) To the extent that the member’s annual benefit equals or exceeds the Limit, the member will no longer be eligible for cost of living increases from the Plan until such time as the benefit, plus the accumulated increases, are less than the Limit; and
(3) Thereafter, in any subsequent limitation year, a member’s annual benefit, including any cost of living increases under the Plan, shall be tested under the then applicable benefit Limit, including any adjustment to the Section 415(b)(1)(A) of the Internal Revenue Code dollar limit under Section 415(d) of the Internal Revenue Code, and the regulations thereunder.
(p) Effect of COLA with a Lump Sum Component on 415(b) Testing. On and after January 1, 2008, with respect to a member who receives a portion of the member’s annual benefit in a lump sum, a member’s applicable Limit will be applied, taking into consideration cost of living increases as required by Section 415(b) of the Internal Revenue Code and applicable Treasury Regulations.
(q) Service Purchases under Section 415(n). Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, if a member makes one or more contributions to purchase permissive service credit under the Plan, then the requirements of Section 415(n) of the Internal Revenue Code will be treated as met only if:
(1) The requirements of Section 415(b) of the Internal Revenue Code are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of Section 415(b) of the Internal Revenue Code; or
(2) The requirements of Section 415(c) of the Internal Revenue Code are met, determined by treating all such contributions as annual additions for purposes of Section 415(c) of the Internal Revenue Code.
(3) For purposes of applying this section, the Plan will not fail to meet the reduced limit under section 415(b)(2)(C) of the Internal Revenue Code solely by reason of this subparagraph and will not fail to meet the percentage limitation under section 415(c)(1)(B) of the Internal Revenue Code solely by reason of this section.
(4) For purposes of this section the term “permissive service credit” means service credit:
(i) recognized by the Plan for purposes of calculating a member’s benefit under the Plan;
(ii) which such member has not received under the Plan; and
(iii) which such member may receive only by making a voluntary additional contribution, in an amount determined under the Plan, which does not exceed the amount necessary to fund the benefit attributable to such service credit.
Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, such term may include service credit for periods for which there is no performance of service, and, notwithstanding clause (ii), may include service credited in order to provide an increased benefit for service credit which a member is receiving under the Plan.
(5) The Plan will fail to meet the requirements of this section if:
(i) more than five (5) years of nonqualified service credit are taken into account for purposes of this subparagraph; or
(ii) any nonqualified service credit is taken into account under this paragraph before the member has at least five (5) years of participation under the Plan.
(6) For purposes of paragraph (5), effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, the term “nonqualified service credit” means permissive service credit other than that allowed with respect to:
(i) service (including parental, medical, sabbatical, and similar leave) as an employee of the Government of the United States, any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing (other than military service or service for credit which was obtained as a result of a repayment described in Section 415(k)(3) of the Internal Revenue Code);
(ii) service (including parental, medical, sabbatical, and similar leave) as an employee (other than as an employee described in clause (i)) of an education organization described in Section 170(b)(1)(A)(ii) of the Internal Revenue Code which is a public, private, or sectarian school which provides elementary or secondary education (through grade 12), or a comparable level of education, as determined under the applicable law of the jurisdiction in which the service was performed;
(iii) service as an employee of an association of employees who are described in clause (i); or
(iv) military service (other than qualified military service under Section 414(u) of the Internal Revenue Code) recognized by the Plan.
In the case of service described in clause (i), (ii) or (iii), such service will be nonqualified service if recognition of such service would cause a member to receive a retirement benefit for the same service under more than one plan.
(7) In the case of a trustee-to-trustee transfer after December 31, 2001, to which Section 403(b)(13)(A) of the Internal Revenue Code or Section 457(e)(17)(A) of the Internal Revenue Code applies (without regard to whether the transfer is made between plans maintained by the same employer):
(i) the limitations of paragraph (5) will not apply in determining whether the transfer is for the purchase of permissive service credit; and
(ii) the distribution rules applicable under federal law to the Plan will apply to such amounts and any benefits attributable to such amounts.
(8) For an Eligible Member, the limitation of Section 415(c)(1) of the Internal Revenue Code shall not be applied to reduce the amount of permissive service credit which may be purchased to an amount less than the amount which was allowed to be purchased under the terms of a Plan in effect on August 5, 1997. For purposes of this paragraph an Eligible Member is an individual who first became a member in the Plan before January 1, 1998.
(r) Repayments of Cash-Outs.
(1) Any repayment of contributions (including interest thereon) to the Plan with respect to an amount previously refunded upon a forfeiture of service credit under the Plan, or another governmental plan maintained by the City of Los Angeles, shall not be taken into account for purposes of Section 415 of the Internal Revenue Code, in accordance with applicable Treasury Regulations.
(2) In the case of any repayment of contributions and interest to the System with respect to an amount previously refunded upon a forfeiture of service credit under another California State or local governmental plan maintained with the State of California, any such repayment with the System shall not be taken into account for purposes of this section.
(s) Reduction of Benefits Priority. Reduction of benefits under the plans of the City of Los Angeles, where required in order to comply with Section 415 of the Internal Revenue Code, shall be made first with respect to the plan in which the member most recently accrued benefits and thereafter in such other plans. The Board of Administration is authorized to create administrative rules necessary to facilitate different manners for reduction of benefits.
SECTION HISTORY
Added by Ord. No. 182,628, Eff. 7-16-13.
